5 Common Life Insurance Scams and How to Avoid Them

Given how common life insurance scams have become lately, it's important to know how to protect yourself.

5 common life insurance scams

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When times get tough, having a strong financial support is what keeps things going. Life insurance is one such essential safety net, offering your loved one financial security when they need it the most. But with the large sums of money involved in this, it's also a magnet for scams. Deloitte’s Insurance Fraud Survey 2023 revealed that 60% of Indian insurers have seen a significant rise in such fraud cases.

Given how common scams have become lately, it's important to know how to protect yourself. Understanding the types of life insurance scams beforehand can help you spot them, ensuring your policy remains a secure investment. Let’s look at some of the most prevalent scams out there and ways to avoid them.

1. Identity Theft

Identity theft is a major issue in the life insurance world. Recent research indicates that 45% of Indian consumers have experienced identity theft. Scammers can steal your personal information, like bank account details, to open policies in your name. They often obtain this information through phishing emails, phone scams or data breaches. Once they have what they need, they can pretend to be you, cashing out your policy or even opening new ones. This kind of fraud can be devastating, both financially and emotionally.

How to protect yourself: Be careful with the information you share. Don’t give out personal details over the phone or email unless you’re 100% sure who you’re dealing with. Keep an eye on your financial statements and consider using identity theft protection apps.

2. Fraudulent Insurers

Not all companies selling life insurance are legitimate. Some lure people in with super low premiums or high returns. These offers appear almost too good to be true. Once you pay the premium, the scammer either disappears or keeps collecting payments without providing any actual coverage. For instance, a priest in Pune lost ₹6 lakh to cyber frauds who allegedly posed as executives of an insurance company and used fake letters from the Union Finance Ministry and the RBI to dupe him. Most victims only realize they’ve been scammed when it’s too late.

How to protect yourself: Always verify the legitimacy of an insurance company before buying a policy. Check if they’re registered with the Insurance Regulatory and Development Authority of India (IRDAI). Look for customer reviews and be cautious of offers that sound too generous.

3. Churning

Also known as twisting, churning occurs when an agent persuades you to replace your existing life insurance policy with a new one, usually not in your best interest. The agent might pitch the new policy as better or cheaper, but their real motive is the commission they’ll earn from selling a new policy. This could leave you with a worse policy and less money.

How to protect yourself: Before you switch policies, talk to a trusted financial advisor. Review the terms of your current policy and compare them to the new one. Make sure the switch is truly in your best interest long-term.

4. Claim Fraud

Claim fraud involves people faking a death or exaggerating injuries to claim life insurance benefits. This type of fraud can involve huge sums of money. Experts says that in India, only 80% of insurance claims are genuine and fraud claims make up 15% in a year.

For instance, in 2010, Igor Vorotinov, a Moldovan national, faked his death to claim a $2 million life insurance policy. His wife identified a body as his and cremated it to avoid further investigation. But later, the police found photos of Igor alive, leading to their arrest.

In India, a 45-year-old woman from Bhayander, Kanchan Pai, allegedly faked her death twice in two years. Her husband and son received nearly Rs 70 lakh in death claims from three private insurance companies between 2021 and 2023. They were waiting for more money when the fraud was exposed.

While you can only be cautious of others' behavior, it's important to be mindful of your own as well. Financial fraud is a serious crime under the IPC. Choose an insurer known for thorough claim verification processes to avoid any negative consequences.

5. Misrepresentation Scam

Another common scam is when the policyholder provides false information during the insurance application process. This might include lying about your health or financial status to secure lower premiums or higher coverage.

The Medical Information Bureau (MIB) is a shared database established by life insurance companies to exchange confidential coded information regarding medical conditions and risk factors, helping insurers identify possible omissions or inaccuracies in the applicants' reported medical histories.

How to protect yourself: Always be honest and accurate when applying for insurance. The short-term savings aren’t worth the risk of losing your coverage when you need it most.

Making a Safe Investment Choice

With scams becoming more sophisticated, picking a reliable and transparent insurer is more important than ever. HDFC Life Click 2 Protect Super offers peace of mind with straightforward terms and a verified, hassle-free claim settlement process.

Under this policy, you get:

• Return of all premiums paid on survival till maturity with the return of premium option.

• An additional amount payable in case of accidental death during the policy term.

• Acceleration of the death benefit on the diagnosis of specified terminal illnesses, until age 80.

• An option to financially protect your parent(s) or grandparent(s) until their survival under the Parent Secure Option.

By staying informed and choosing a trusted insurer, you can protect yourself and your family from life insurance scams and secure the financial future you’ve worked so hard to build.